To Act or Not To Act…

August 7, 2012

The President of the Federal Reserve Bank of Boston Eric Rosengren thinks the Fed should take new measures to support economic growth. After two rounds of bond buying since the recession, Rosengren is calling for a more aggressive bond-buying program without a fixed amount or end-date to the plan. With unemployment stuck at over 8 percent for the year, Rosengren sees the economy as a swimmer treading water and getting nowhere.

A third round of quantitative easing, however, is nothing new, and many question its effectiveness this go around. One such opponent, President of the Federal Reserve Bank of Dallas Richard Fisher, says the real problem is Congress’s lack of action on fiscal policy. “[T]here is a throttling mechanism which is called fiscal policy,” Fisher said, and if Congress would act, “we could unleash enormous growth in this country.” Even the Chairman of the Federal Reserve Ben Bernanke agrees, “[M]onetary policy can’t do much about long-term growth.” The only “new measure” for the economy would be Congress acting on fiscal policy.

But, Congress is not in a hurry to act. Having adjourned in the House for their August recess and holding only procedural sessions known as “Pro Forma session” in the Senate, both chambers leave a laundry list of fiscal matters on the table until their return. Some of which include an extension to the 2001 and 2003 tax cuts, the impending spending cuts known as sequestration, nearly 100 other expiring tax provisions and a six-month continuing resolution to fund the government. While the legislative branch is not known for its speedy action on pressing issues, any action at all would be welcome at this point.

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